Gold is an Effective Hedge against Fluctuations in the US Dollar
October 29th, 2008 Posted in Oil and Precious Metals
The gold is a good investment to utilize, as it can be served as an insurance policy against a currency collapse. For that purpose, you need to invest a lot of it. Owning 30 or 40 coins is fine but won’t assure you a high standard of living in a world where dollars are dust.
However, against inflation gold is not reliable. Since 1968 the price of gold on the open market has ranged widely. It reached $850 an ounce in January 1980 to a low of 252.90 in June 1999, the high prices not seen again until January 2008. During those years, gold plunged and reared but lost more than half of its purchasing power. For an 80ties investor to break even after inflation, gold would have to reach around $2000 an ounce. This year the spot gold hit a one-year low of $706 an ounce on Thursday, October 23 2008, sharply below its record high of almost $1,000 an ounce on March 17.
Gold is often used as an effective hedge against fluctuations in the US dollar, one of the world’s main trading currencies. If the dollar appreciates, then the gold price falls, while a fall in the dollar relative to the other main currencies produces a rise in the gold price. While this may also be true of other assets, gold has consistently proved itself as the most effective instrument in protecting against the dollar weakness. Gold is unique in that it does not carry a credit risk. There is no risk that a coupon or a redemption payment will not be made because the company went bankrupt.
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Tags: Commodities Trading, dollar, Gold, USD
